Stocks gained strongly on Thursday morning as signs of progress in Washington and hopes over a continuation of US monetary stimulus prompted bargain hunters to step in following three straight days of losses.
The FTSE 100 set a fresh three-month low of 6,337.91 on Wednesday afternoon, its worst level since July 3rd, but rebounded with gains of as much as 0.7% this morning.
In focus this morning will be the Bank of England's (BoE) policy meeting with the Monetary Policy Committee likely to hold interest rates at 0.5%. The central bank has vowed to maintain the rate at its record low until the unemployment rate falls from its current level of 7.7% to 7%. During its meeting, the BoE is also expected to keep its asset purchase programme at £375bn.
The government shutdown, entering its 10th day on Thursday, is still weighing heavily on the minds of investors, but some small signs of progress supported US and Asian equity markets overnight.
According to reports, House Republicans are now warming to the idea put forward by President Barack Obama to have a short-term increase in the debt ceiling while leaders continue to wrangle over the budget and a deficit-reduction plan. Chairman of the House Budget Committee Paul Ryan has outlined a plan that would extend the borrowing limit for four to six weeks. However, Obama continues to reiterate that the reopening of government would come without conditions to change policy.
Well-known dove Janet Yellen was nominated as the next chair of the US Federal Reserve on Wednesday afternoon. Yellen will be the first female at the head of the US central bank and is widely expected to argue for a continuation of aggressive monetary easing started by her predecessor, Ben Bernanke, when he steps down on January 31st 2014.
Minutes of the latest Federal Open Market Committee meeting were released yesterday, showing that most members at the central bank still thought it would be appropriate to begin tapering quantitative easing (QE) before the end of the year. However, given that the meeting took place before the government shutdown, many now believe that a taper could be delayed until next year.
Analyst Michael Gapen from Barclays said that the minutes were consistent with his expectation that the Fed will begin to scale back QE in December.
"That said, the ongoing federal government shutdown and upcoming expiration of the debt ceiling suggests that the decision to taper could be pushed into 2014. A sooner resolution to the fiscal risks that cloud the outlook could keep December on the table, but a longer stalemate could dampen growth sufficiently and lead to a tapering in Q1 14 or later."
FTSE 100: Financials, utilities on the rise early on
Asset management firm Schroders was a high riser this morning after earlier this week launching the Global Recovery Fund, a new type of fund that favours "deeply unloved" stocks that people have overlooked in the hope that they will outperform in an economic recovery.
British banking giant RBS was also performing well this morning, along with domestic peers Lloyds and Barclays.
Household utility giant SSE rose after revealing that electricity and gas tariffs are to rise by an average 8.2% from November as the company attempts to pass on rising wholesale energy costs (along with delivery charges and government levies) to customers. Sector peers Centrica and United Utilities also gained this morning.
Industrial conglomerate Melrose Industries was in demand after saying it was selling Crosby and Acco to private equity group Kohlberg Kravis Roberts for £627.3m. It said it would use the proceeds to pay down debt and fund a return of capital "in due course".
FTSE 250: WH Smiths jumps on buyback
Newsagent WH Smith surged after booking a full-year profit ahead of expectations, lifting its final dividend 15% and announcing a further £50m share buyback. Pre-tax profit rose 6% to £108m for the year ended August 31st while total sales fell 5% to £1.18bn.
Information and events group Informa sunk after the news that its Finance Director Adam Walker will move over to aerospace giant GKN to replace William Seeger. Westhouse Securities was also weighing on the stock this morning after downgrading its rating to 'neutral'.
FTSE 100 - Risers
Whitbread (WTB) 3,067.00p +2.51%
Persimmon (PSN) 1,156.00p +2.21%
Schroders (SDR) 2,545.00p +2.09%
International Consolidated Airlines Group SA (CDI) (IAG) 332.90p +1.90%
GKN (GKN) 349.70p +1.89%
ARM Holdings (ARM) 963.00p +1.85%
CRH (CRH) 1,469.00p +1.80%
Royal Bank of Scotland Group (RBS) 376.00p +1.70%
IMI (IMI) 1,471.00p +1.66%
Weir Group (WEIR) 2,269.00p +1.61%
FTSE 100 - Fallers
G4S (GFS) 237.00p -0.84%
Babcock International Group (BAB) 1,155.00p -0.43%
Vedanta Resources (VED) 1,017.00p -0.29%
British Sky Broadcasting Group (BSY) 857.50p -0.23%
Unilever (ULVR) 2,349.00p -0.09%
Reed Elsevier (REL) 821.00p -0.06%
BT Group (BT.A) 342.50p -0.06%
FTSE 250 - Risers
WH Smith (SMWH) 903.50p +8.20%
Ladbrokes (LAD) 189.60p +5.45%
Keller Group (KLR) 986.50p +4.95%
Hochschild Mining (HOC) 160.30p +4.77%
Bwin.party Digital Entertainment (BPTY) 125.80p +4.14%
Imagination Technologies Group (IMG) 272.60p +4.01%
Ashtead Group (AHT) 610.00p +3.39%
Berkeley Group Holdings (The) (BKG) 2,205.00p +3.18%
Diploma (DPLM) 635.50p +3.08%
Redrow (RDW) 242.90p +3.01%
FTSE 250 - Fallers
Informa (INF) 497.60p -2.43%
Telecity Group (TCY) 757.50p -1.62%
Brown (N.) Group (BWNG) 483.70p -1.08%
Oxford Instruments (OXIG) 1,389.00p -0.93%
Eurasian Natural Resources Corporation (ENRC) 217.90p -0.73%
Perform Group (PER) 555.00p -0.72%
Inmarsat (ISAT) 700.00p -0.71%
Go-Ahead Group (GOG) 1,670.00p -0.60%
PayPoint (PAY) 1,024.00p -0.58%
Genesis Emerging Markets Fund Ltd. (GSS) 542.00p -0.55%